Valuing Oncology Transactions
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The document discusses oncology transactions, emphasizing outright acquisitions by hospitals, national chains, and cancer centers, highlighting key motivating factors such as market share and reimbursement rates. It outlines important issues such as fair market value in valuations, deal structures, and the need for due diligence in these transactions. Additionally, it addresses joint ventures and alliances, focusing on compensation arrangements, reputation risks, and the value of existing businesses and intellectual property.
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Valuing Oncology Transactions
- 2. Oncology Transactions Jim Lloyd, CPA/ABV, ASA Principal | PYA
- 3. Oncology Transactions – Outright Acquisitions • Active buyers include national chains, hospitals and other cancer centers/physician practices. • Many transactions involving national chains are for less than 100% interests; however, typically include long-term management agreements. • Hospitals often acquire 100% interests due to desire for more favorable provider-based reimbursement rates and 340(b) drug pricing (if applicable). • Motivating factors include increased market share, competitive positioning, capacity issues and CON needs among others.
- 4. Acquisitions – Key Issues • Valuation – transaction terms must be at FMV • Deal structure – Stock vs. asset sale (tax impact to seller) – Ownership retention by seller and post-transaction involvement – All upfront payment vs. opportunity for earn out • Due diligence (up-coding, over coding, etc.) • Post transaction compensation arrangements • Certificate of Need issues • Exit strategy for minority owner(s) • Commercial reasonableness of the transaction
- 5. Joint Ventures and Alliances • Joint ventures (equity ownership deals) – e.g. partnerships between large health systems or academic medical centers and rural hospitals. • Alliances (non-equity contractual arrangements) – e.g. agreements between national providers with strong reputation for quality and/or operating expertise and smaller facilities with limited resources. • Motivating factors include: risk sharing, management expertise, and capital needs among others.
- 6. Joint Ventures and Alliances – Key Issues • Compensation arrangements (e.g. MSAs, PSAs, etc.) must be at fair market value and commercially reasonable. • Value of existing business/unit – if transitioning into the JV. • Reputation risk to all parties if something goes wrong. • Value of “brand” and/or other intellectual property assets contributed to or anticipated to be used by the JV.
- 7. Joint Ventures and Alliances – Key Issues • Compensation arrangements (e.g. MSAs, PSAs, etc.) must be at fair market value and commercially reasonable. • Value of existing business/unit – if transitioning into the JV. • Reputation risk to all parties if something goes wrong. • Value of “brand” and/or other intellectual property assets contributed to or anticipated to be used by the JV.